Bitcoin prices show no signs of abating. Why is crypto rallying?

Bitcoin

and other cryptocurrencies rebounded on Wednesday, setting new 20-month highs as the digital asset continued to benefit from the perfect storm of factors that have helped push prices skyward over the past seven weeks.

Bitcoin’s price rose 5% in the past 24 hours to near $43,600, after previously trading above $44,000, which now marks its highest point since early April 2022, weeks before cryptos plunged fully into a brutal and prolonged bear market. The biggest digital asset has been on a red-hot streak since mid-October, with gains fueled by hopes that U.S. regulators will soon approve the first-ever bitcoin exchange-traded fund (ETF)—but there’s more to fuel the rally.

“Both micro and macro factors are lining up for Bitcoin right now,” said Zach Pantel, managing director of research at digital asset manager Grayscale. “The central bank has turned pessimistic, bitcoin supply looks tighter ahead of halving, and investors are eyeing the potential for both a bitcoin ETF approval next year and a contentious presidential election in the US.”

Indeed, tokens have also been buoyed by an improving macroeconomic backdrop amid expectations that the Federal Reserve will cut interest rates several times next year, with hopes that a bitcoin ETF will spur new crypto investment. The same trend has caused excitement


Dow Jones Industrial Average

And


S&P 500

But Bitcoin outperformed the stock market. Low rates—and Treasury yields—benefit riskier bets like bitcoin, as higher returns on cash or risk-free government debt keep investors away from riskier plays.

Also, after several gains that pushed the price of Bitcoin above several key levels, analysts see strong momentum and an improving technical market backdrop. With prices in the current range, the historical trend of Bitcoin moving rapidly through the $40,000 zone is particularly interesting, suggesting that an approach to $50,000 may be in sight if a correction does not come.

“We have repeatedly referred to the $40,000 to $46,000 range as ‘thin air territory,'” said Alex Kuptsikewicz, an analyst at brokerage FxPro. “The market has not sustained here in the past and we need to look for hints of previous reversals in the $46,000 to $47,000 area, where there was a reversal in March last year and temporary support in 2021.”

However, the most important factor driving Bitcoin’s price is supply and demand dynamics—the only real fundamental basis for analyzing the token. A reluctance to sell among many holders suggests a tight supply situation that could worsen next year with an expected bitcoin “halving” of a planned monetary policy event that would reduce crypto supply.

“The percentage of Bitcoin’s supply, which has been stagnant for over a year, continues to rise,” said Strahinca Savic, head of data and analytics at crypto consultant and capital markets platform FRNT Financial. “That’s why this rally is characterized as ‘nothing to sell.'” There is this large segment of the Bitcoin investor base that is very reluctant to sell.

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Now, the biggest tailwind for Bitcoin is the flow of new money into the space during such a limited token distribution time. The recent strong performance of smaller tokens like Dogecoin may be a sign that the good mood is extending to the prevalence of FOMO, or fear of missing out, that has driven crypto bull markets in the past.

“The rally has sidelined interested parties who are likely to engage later,” said Alex Thorne, head of research at crypto financial services group Galaxy Digital.

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Beyond Bitcoin,


Ether

-The second largest crypto-rose 2% to $2,250. Smaller tokens or altcoins are similarly modest


Cardano

8% climbing and


Polygon

3% rises. Memecoins were still green


Dogecoin

13% rising and


Shiba Inu

12% more.

Write to Jack Denton at [email protected]

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